The S&P 500 rose about 1.5% on Monday, November 10, as implied volatility levels fell sharply. The VIX 1-Day dropped from 16.9 to open around 9—a big decline—before closing at 11.2. The volatility reset now appears complete. This suggests the rally is likely to stall on Tuesday, following the typical pattern seen after strong Monday gains, when implied volatility is elevated on the preceding Friday.

Also, with the announcement that the government shutdown is likely ending, the VIX index fell sharply. As usual, when implied volatility declined, the stock market rallied—and once the VIX stabilized, the rally stalled. This has become a recurring pattern in recent months, underscoring how much of the market’s day-to-day movement is being driven by options positioning and flows rather than fundamental and technical factors.

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Tomorrow is a bank holiday, so the bond market will be closed. That also means there will be no Treasury settlements. However, this changes on Wednesday, when about $14 billion in Treasuries are scheduled to settle. Additional settlements of roughly $23 billion on the 13th, $26.7 billion on the 17th, and $14 billion on the 18th will follow. There’s also potential for another $20 billion or so to settle on the 19th, if the typical pattern follows. Altogether, this amounts to roughly $100 billion in settlements between Wednesday of this week and Thursday of next week—a sizable amount that could strain market liquidity, much as occurred in the final week of October, when similar settlement volumes took place.

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Despite there being no settlements today, the average repo rate at DTCC rose to 3.99% from 3.97% on Friday. This should push SOFR higher tomorrow. Volume levels for Treasury transactions also declined to $40.3 billion, which could have added some extra liquidity to the equity market, but again, I would expect much of this change to be as we head into Wednesday.

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Overall, I doubt this rally amounts to much, but it’s hard to say in a market where one stock can drive half the day’s gains and add nearly $300 billion to its market cap, as Nvidia did today, for no apparent reason. Meanwhile, its 1-week implied volatility rose to 53.9% from 44.5%, and is probably on its way to 100%. Unfortunately, Nvidia has left one more volatility dispersion trade on the table that is yet to be completed. 

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